Arxis Q2 Earnings Call Highlights

Key Points

• Strong Q2 performance: Sales rose 25% year over year to $501 million, while adjusted EBITDA increased 38% to $211 million and margins expanded to 42.2%. All three end markets and both company segments delivered double-digit growth.
• Balance sheet and cash flow improved: Free cash flow surged 261% to $127 million, while debt repayments and refinancing reduced annual interest expense by more than $75 million. Net leverage fell below two times, with approximately $1.1 billion in available liquidity.
• 2026 outlook raised: Arxis increased its revenue guidance to $1.96 billion-$1.98 billion and adjusted EBITDA guidance to $790 million-$800 million, supported by stronger bookings, acquisitions and expected organic growth of about 20%.

Arxis NASDAQ: ARXS reported second-quarter sales of $501 million, up 25% from a year earlier, as organic growth, pricing and acquisitions contributed to broad-based gains across its businesses and end markets.

Adjusted EBITDA rose 38% year over year to $211 million, while adjusted EBITDA margin expanded 390 basis points to 42.2%. Chief Executive Officer Kevin Perhamus said growth was balanced among new business wins, pricing and acquisitions, with each contributing mid-single-digit growth. Underlying market demand accounted for the remainder.

“Each of our three end markets delivered double-digit growth,” Perhamus said, adding that both company segments grew at double-digit rates and that no individual customer platform or program was a material driver of the quarter.

Organic growth and profitability

Chief Financial Officer Azad Badakhsh said second-quarter sales growth included 21% organic growth and a 4% contribution from the Oldham Seals, Micro-Tronics and MagCanica acquisitions. All three end markets posted strong double-digit organic growth, he said.

Management attributed the margin expansion to higher revenue, operating leverage, disciplined pricing and operational improvements. Badakhsh said cost-optimization efforts in the Mechanical Segment continued to gain traction.

During the question-and-answer session, Perhamus said the company’s organic-growth framework consists of mid-single-digit contributions from new business and pricing, while the current increase above its longer-term growth profile is being driven by the base business and market growth. He characterized base-business growth as currently running at low double-digit rates.

Perhamus also highlighted the Mechanical Segment’s first-half adjusted EBITDA margin of 40.1%, following a particularly strong second quarter. He said the segment benefited from decentralizing a large 2024 acquisition and from operating leverage. The segment generated 26% growth, including more than 20% organic growth, while maintaining the same employee count as in July of the prior year, according to Perhamus.

Cash flow, leverage and capital spending

Free cash flow totaled $127 million in the second quarter, an increase of 261% year over year. Badakhsh said the result reflected higher earnings and improved working capital, with previously discussed working-capital timing effects beginning to normalize. The company expects free-cash-flow generation to build in the second half of 2026 and expects full-year conversion to align with its internal targets.

Arxis used a portion of its April initial public offering proceeds to repay about $946 million of its Term Loan B, reducing annual interest expense by more than $70 million compared with 2025, according to Badakhsh. In June, the company repriced the remaining Term Loan B by 25 basis points, which it said will reduce annual cash interest expense by another $5 million.

As of June 30, net leverage was below two times and available liquidity was approximately $1.1 billion, including cash, an undrawn revolving credit facility and delayed-draw Term Loan B capacity.

Perhamus said the company has capacity to support its growth plans across its network of 48 business units and nearly 70 factories. Arxis expects capital expenditures of about 3% of revenue, or roughly $60 million, in 2026, including growth-related investments.

Acquisitions expand technology portfolio

Since its IPO, Arxis has announced acquisitions of Omnetics, MagCanica and Blue Line. The company said the combined EBITDA of the three transactions exceeds its internal annual M&A target.

Perhamus said Omnetics adds miniature interconnect technology for harsh-environment applications; MagCanica adds proprietary torque-sensing technology for high-precision sensing applications, including aerospace and defense; and Blue Line expands Arxis’ sensing offerings with precision position-sensing and motion-control systems.

Management did not disclose financial details for individual transactions. Perhamus described Blue Line, MagCanica and Omnetics as small, medium and large transactions, respectively, and said Arxis evaluates targets based on business-model fit rather than deal size. The company seeks businesses whose EBITDA can grow as fast as or faster than its base business and where the acquisition multiple can be reduced to less than 10 times over three years, he said.

Perhamus said Omnetics was acquired through a competitive but limited process, with the sellers seeking publicly traded equity as part of the consideration. He said Arxis’ public-company status enabled it to participate in the process, while its partnership with Arcline supported diligence, financing and transaction execution during the IPO process.

Arxis has completed more than 35 acquisitions over the past six years, according to Perhamus. The company has announced four acquisitions in 2026, including Micro-Tronics in January. Management said its pipeline remains active and that it is evaluating opportunities across a fragmented market containing thousands of potential targets.

Guidance raised on stronger bookings

Arxis raised its full-year 2026 sales outlook to a range of $1.96 billion to $1.98 billion, increasing the midpoint by $100 million from prior guidance. At the midpoint, the outlook implies 24% year-over-year revenue growth, including approximately 20% organic growth.

The company also raised adjusted EBITDA guidance to $790 million to $800 million, a $70 million increase at the midpoint. Adjusted EBITDA margin is now expected to be 40.4%, compared with the prior outlook of 38.8%.

The updated outlook includes expected contributions from MagCanica and Blue Line but excludes the pending Omnetics acquisition. Management said the outlook assumes roughly 20% organic growth across all three end markets, supported by market demand, pricing and new-business generation.

Perhamus said Arxis had secured approximately 95% of its expected 2026 revenue through backlog and purchase orders, based on its internal tracking system. Additional bookings during the past three months came in stronger than expected and increased visibility for the remainder of the year, he said. Management declined to comment on 2027, saying it remains focused on executing its 2026 plan.

About Arxis (NASDAQ:ARXS)

We are a leading designer and manufacturer of proprietary, mission-critical electronic and mechanical components engineered for cutting-edge performance in extreme environments. Leveraging significant intellectual property (“IP”) and world-class engineering capabilities, we design and deliver innovative solutions that address some of our customers' most complex performance needs. Arxis is the result of a deliberate and disciplined strategy executed by our sponsor, Arcline, and the Arxis management team to create a purpose-built, cohesive business through targeted acquisitions with similar product and end market characteristics.

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